RISE IN RETAIL INFLATION

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• According to the recent National Statistical Office (NSO) data, the retail inflation rose to 7% in July, 2022 and the Index of Industrial Production (IIP) declined to a four-month low of 2.4% in July,2022 as against a growth of 11.5% in 2021.
• Nine of the 22 manufacturing sub-sectors reported a contraction in output, including food products, tobacco products, leather products and electrical equipment.

Inflation

• Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
• Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
• However, a moderate level of inflation is required in the economy to ensure that production is promoted.
• In India, the NSO under the Ministry of Statistics and Programme Implementation measures inflation.
• In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price changes, respectively.

Consumer Price Index

• It measures price changes from the perspective of a retail buyer.
• The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.

Four types of CPI are as follows:

1. CPI for Industrial Workers (IW).
2. CPI for Agricultural Labourer (AL).
3. CPI for Rural Labourer (RL).
4. CPI (Rural/Urban/Combined).

Causes of Recent Inflation in India

• The uptick in inflation was largely driven by ‘a broad-based rise across the food segment’, with a higher inflation in cereals, pulses, milk, fruits.
• The price rise in cereals rose further from 6.9% in July to 9.6% in August (2022).
• Rural inflation saw a sharper rise than urban inflation.
• Due to erratic monsoon, the Kharif crop sowing is unlikely to touch last year’s levels of production, therefore food inflation could remain a problem in the near future.
• The rise in inflation is attributable both to an adverse base effect and an increase in food and fuel prices.
• Core inflation — headline inflation excluding food and fuel — was at 5.9% in August, remaining below the tolerance limit of 6% for the fourth consecutive month.
• Global inflation pressures, Inflationary expectations, Weakness in Indian currency, etc. 

Index of Industrial Production

• IIP is an indicator that measures the changes in the volume of production of industrial products during a given period.
• It is compiled and published monthly by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation.
• It is a composite indicator that measures the growth rate of industry groups classified under:
• Broad sectors, namely, Mining, Manufacturing, and Electricity.
• Use-based sectors, namely Basic Goods, Capital Goods, and Intermediate Goods.
• The base year for IIP is 2011-2012.

Way Forward

There should be consistency in import policy as that sends appropriate market signals in advance. Intervening through import tariffs is better than quotas, which leads to greater welfare loss. Recently, Government has prohibited exports of food products like wheat flour/atta, rice, maida, etc. to keep domestic supplies steady and curb rise in prices.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT